Something Completely Different: Baker

When founder and former managing partner of Tria Partners Andrew Baker was appointed as AustralianSuper head of proposition and products in May, many people thought the role was especially created for him to join the fund.

After all, a position like that wouldn’t be advertised on a jobs site like seek.com.au, would it?

“You know, it was [advertised],” Baker says in an exclusive interview with theinstoreport.

“Industry super funds, and AustralianSuper in particular, are very egalitarian in that sense and due processes are followed.

“So the need was there and I was approached about that.

“It would be fair to say that [the role] was re-sketched in the way it was delivered, but it did get posted on seek.com.au and they had a lot of candidates, so I never assumed that that opportunity was mine for the taking.

“I didn’t get any special treatment and that is absolutely fine.”

Baker left the consultancy firm he had established 11 years ago in March and says the decision to exit was largely based on his ideas about proper succession planning.

“I always tried to run Tria in a very professional and very robust manner, even though it was a small firm,” he says.

“I was very keen to avoid the cliché of the small firm that went out of business in the first downturn it faced.

“We were always a very strongly capitalised firm so that we didn’t have to look over our shoulders and worry about cash flow.

“Similarly, we were lucky to have a really good chairman in John Tuxworth, who worked at Rothschild and helped us put in place many institutional-grade systems around performance management and governance very early on.

“So even though we were only 15 people by the time we merged with NMG [Consulting], we had many systems that were better than organisations 10 times our size.”

This rigour helped the consultancy firm retain many talented staff, meaning there were good candidates to take over, he says.

“Equally, there is the cliché of the founder who hangs on too long,” he says.

“I got into the entrepreneurial side after having been to London Business School.

“I did my master’s there, and one of the things you learn is that there is a time to start, a time to build and a time to hand it over to the next generation, and that is the real test of success.

“Some people clearly can’t get their heads around that; there are some examples in the industry where the founder stays forever and that is fine, but it does mean that some people in the organisation feel blocked and end up going elsewhere.

“That is a bad outcome and I didn’t want that.

“[Tria] had a very strong second line of people behind me, so to the extent that it ever was a one-man band, that ceased to be the case a long time ago.”

Once he had convinced himself about the right path to succession, the question of timing came up.

“Once you’ve sorted that principle out in your head, there is a number, isn’t there? Is it 10 years, 15 years, what is the number?” he says.

“In the end, there was no particular magic in the timing other than it seemed like a good moment in time to execute the generational handover and do so on terms that everyone was happy with.

“If you can do that with no real feelings, then that is the perfect situation.”

But having structured his exit from the business, he faced the question of what was next.

“It was a question of too young and too poor to retire, so I needed to go do something else and I was fortunate enough to be asked to look at a number of different things,” he says.

“I decided that I wanted to do something completely different. When I looked at my CV, the one thing I hadn’t done was working for a large-scale stand-alone pension fund.

“Earlier in my career I had worked for Commonwealth Bank, running their corporate super business, but it is not quite the same.

“The world of big pension and super funds has changed dramatically over the past 10 years.

“My view is that we are at a point where some funds are starting to transform into real institutions and this is a very interesting point of time.”

Eye on retirement products

Baker spends three days a week in AustralianSuper’s Melbourne office, where his six-member team is based, and two days in the fund’s Sydney office.

He plans to add three more people to the team in the coming year.

“We will be looking to add skills across that spectrum: across employers, across accumulation members and across pre-retirement and retirement members.”

In charge of products, Baker is tasked with the development of an appropriate response to the need for retirement options.

Retirement is a tricky phase to develop products for, he says, because it involves a great deal more variables than the accumulation phase.

“When it comes to retirement, the fund has a very large distribution of members, not just of different ages, but also of different income and wealth points,” he says.

“Going forward the fund will have to meet much more sophisticated member needs than it has done currently.

“Probably its biggest single priority is making sure that members with relatively modest means have access to high-quality, reasonably priced, easy-to-access retirement income products.

“AustralianSuper is one of the largest defined contribution funds in the world, so when we think about retirement income we are really looking at all the global systems and products and trying to learn from their mistakes and pick out those solutions that are best applicable to our market.

“It is probably one of the biggest and most important decisions that the fund has in front of it and we won’t be racing to make that decision, because it is too easy to make a mistake.”

Life-cycle not an option

AustralianSuper has never been a fan of life-cycle options and Baker is equally underwhelmed by these products.

“There is a lot less to that than meets the eye, quite frankly,” he says.

“Most of those [options] are pretty simplistic, often passive portfolios, which excessively de-risk people when they come into retirement.

“I don’t think they are necessarily smart, but there is a market for those.”

He is more positive on new initiatives such as Mercer’s pooled survival fund, although he warns it is still early days for these types of products.

“The other way to think about life cycle is the retirement design, such as the product Mercer has come out with, which has the pooled longevity aspect in it,” he says.

“It is a first generation-style attempt and it is a good attempt.

“I’m not sure if it will be the final version, but everyone is going to have a segment of members for which some kind of longevity solution is part of their story.”

But he says these types of longevity solutions are notoriously difficult to put together.

“Conceptually, they are a great idea, but they are phenomenally expensive to develop and they are really complex,” he says.

“Anything to do with smoothing guarantees tends to be expensive, especially when it is on the balance sheet [of the product provider].

“Academics and government love to say that everyone should buy a longevity solution, but in reality a lot of people’s balances are too small to really get any benefit from those products and people with large balances often think they are too smart to buy into a pooled solution.

“There is a long history of development in this industry and a long list of failures, so part of the problem is to work out whether there is a market for it in the absence of compulsion.”

Focus on Member Direct

Instead, Baker is keener to further develop AustralianSuper’s Member Direct option because it allows for a great deal of customisation.

“Member Direct, because it is so feature rich, with some further enhancements could be one of the most attractive platforms in the market for certain member segments and advisers,” he says.

“There have been some significant barriers to uptake with Member Direct, but they are being progressively addressed.

“For instance, for a long time it had no pension division, so a lot of advisers quite understandably looked at it and said: ‘Well, this is only half a solution and I’m not going to use it.’

“So we’ve opened the pension division in the last couple of months and we are also going to create a tax offset between pension and accumulation, the return of CGT (capital gains tax), which is going to be delivered by Christmas.

“Then the adviser experience is going to be improved significantly by the first half of next year.”

Yet, this could mean AustralianSuper will have to scale back some of its choice products in favour of further investments in the Member Direct platform.

“We are progressively reviewing all those [investment] options to make sure that there is an optimal mix and experience for members,” Baker says.

“Member Direct is the ideal space for customisation and specialisation; you can do lots of things there.

“This means there is less need for a really extensive choice on the main platform, so we are certainly looking at some of the less-used options at the moment.”

Although Member Direct was partly launched as a response to the outflow of high account balances to self-managed superannuation funds (SMSF), he says AustralianSuper’s thinking about competition from these funds has evolved since then.

“We look at SMSFs and are asking ourselves what problem we are trying to solve,” he says.

“When I look at SMSFs there are a couple of things going on: the thing that is real is individualisation and that is a trend that is noticeable across the economy.

“It doesn’t matter what industry you are looking at, there is a drift from collective to individualisation.

“That is part of what is happening with SMSFs and so we need to be true in our response to individualisation, not to SMSFs.

“Obviously, Member Direct is one of those [responses], but we are not trying to solve the problem of SMSFs; we are trying to solve the problem of individualisation.

“There are plenty of people with large balances that feel they don’t need the complexity of an SMSF and there are plenty of members with large balances in AustralianSuper.”

Besides, it is no longer a one-way street when it comes to SMSFs.

AustralianSuper is witnessing more and more trustees who are in the process of winding up their fund.

“Interestingly, the fund is experiencing a rapid increase in return traffic from SMSFs,” Baker says.

“It has been evident over a number of years, but it is growing very, very rapidly. That is an area of current research for us.

“The speculation was that the tide would start to turn when people hit 80 or so and it is not there really yet.

“What we see now are returns from SMSFs that should never have been set up; situations where the complexity of SMSFs was never explained properly.

“The experience has now been going on for long enough that some people have tried it and found it wasn’t for them.”

Although he is positive about ASIC’s recent guidelines on the minimum SMSF balance, he says its response could have been firmer.

“The thing we get concerned about is that a lot of SMSFs are being set up with inappropriately low balances,” he says.

“The info notes that ASIC released last week are really a great step in the right direction.

“But it is far too timid, as usual.

“From our analysis the right number is $500,000, not $200,000. But at least $200,000 is a number out there, so that is useful.

“We see a lot of evidence of SMSFs that have been set up with considerably less than that number.